Will the Promising Trends At Accsys Technologies (LON:AXS) Continue?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Accsys Technologies (LON:AXS) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Accsys Technologies:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.025 = €4.6m ÷ (€207m - €24m) (Based on the trailing twelve months to March 2020).

So, Accsys Technologies has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Forestry industry average of 5.6%.

See our latest analysis for Accsys Technologies

Above you can see how the current ROCE for Accsys Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Accsys Technologies here for free.

So How Is Accsys Technologies' ROCE Trending?

The fact that Accsys Technologies is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.5% on its capital. And unsurprisingly, like most companies trying to break into the black, Accsys Technologies is utilizing 327% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Accsys Technologies' ROCE

Long story short, we're delighted to see that Accsys Technologies' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a solid 59% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Accsys Technologies can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Accsys Technologies (1 is significant) you should be aware of.

While Accsys Technologies may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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